Running Head: COUNTERFEIT GOODS

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The High Cost of Cheap Counterfeit Goods

Deniz A. Bilgutay

Humanities 101, Section 1

Professor Fitzgerald

March 4, 2015

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Abstract

The global trade in counterfeit products costs manufacturers of luxury goods millions of dollars each year. Although this illegal trade threatens the free market, employs underage labor, and may even fund terrorism, many people consider it a victimless crime. Studies show that some consumers even take pride in buying knock-off products. But a closer look at this illicit trade in counterfeit goods shows that consumers in the United States—and around the world—do not understand the ethical implications of the choices they make. Consumers should stop supporting this illegal business, and law enforcement officials should prosecute it more vigorously than they currently do. In the final analysis, this illegal practice hurts legitimate businesses and in some cases endangers the health and safety of consumers.

Keywords: counterfeiting, terrorism, ethics, crime

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The High Cost of Cheap Counterfeit Goods

For those who do not want to pay for genuine designer products, a fake Louis Vuitton bag or knock-off Rolex watch might seem too good to pass up. Such purchases may even be a source of pride. According to one study, two-thirds of British consumers said they would be “proud to tell family and friends” that they bought inexpensive knock-offs (Thomas, 2007). The trade in counterfeit goods, however, is a crime—and not a victimless crime. A growing body of evidence suggests that the makers and distributers of counterfeit goods have ties to child labor, organized crime, and even terrorism. In addition, the global economic cost of counterfeiting is estimated at $600 billion a year, according to recent data from the International Chamber of Commerce (Melik, 2011). For these reasons, consumers should stop buying these products and funding the illegal activities that this activity supports.

Much of the responsibility for the trade in counterfeit goods can be placed on the manufacturers and the countries that permit the production and export of such goods. For example, China, which dominates the world counterfeit trade, is doing very little to stop this activity. According to a recent article in USA Today by Calum MacLeod (2011), “a major obstacle is China’s shanzhai culture, whereby some Chinese delight in making cheap imitations, sometimes in parody, of expensive, famous brands.” Chinese counterfeiters have gone so far as to create entire fake stores: fake Starbucks stores, fake Abercrombie & Fitch stores, and even fake Apple stores. Although some of these copycats have been prosecuted, there is a high level of tolerance, even admiration, for counterfeiting in China. This attitude towards shanzhai is reflected in the country’s lax intellectual property protection laws. As one Chinese intellectual property lawyer observed, “The penalties don’t outweigh the benefits” (as cited in MacLeod, 2011).

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Given this situation, the production of counterfeit goods in China is not likely to slow down any time soon.

Despite such cultural justifications for counterfeiting, there is still an ethical problem associated with the purchase of knock-offs. As Dana Thomas (2007) has written in The New York Times, many of these counterfeit products are made by children who are “sold or sent off by their families to work in clandestine factories.” To American consumers, the problem of children laboring in Chinese factories may be remote, but it is serious. If it is reasonable to place blame for this flourishing market on the countries that allow it, it is also reasonable to blame the people who buy most of the counterfeit goods—namely, consumers in the United States and Europe. According to a report by U.S. Customs and Border Patrol, 62% of fake goods seized in the United States in 2011 were produced in China (as cited in Coleman, 2012). In Europe, the numbers are even higher. According to The Wall Street Journal, 85% of goods seized in the European Union come from China (Nairn, 2011). Consequently, the simple act of buying a counterfeit Coach handbag implicates the consumer in the practice of forced child labor.

Immoral labor practices are not the only reason why the counterfeit market needs to be stopped. Organized crime is behind much of the counterfeit trade, so “every dollar spent on a knockoff Gap polo shirt or a fake Kate Spade handbag may be supporting drug trafficking, … and worse” (“Editorial: The True Cost,” 2007). Consumer dollars may also be supporting narcotics, weapons, and child prostitution (Thomas, 2007).

This illicit international system also helps to finance groups even more sinister than crime syndicates. American consumers of counterfeit goods should understand that profits from counterfeit goods support terrorist and extremist groups, including Hezbollah, paramilitary organizations in Northern Ireland, and FARC, a revolutionary armed faction in Colombia (Thomas, 2007).

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According to the International Anti-Counterfeiting Coalition, the sale of knock-off T-shirts may even have funded the 1993 attack on the World Trade Center. Some observers speculate that terrorists annually receive about 2% of the roughly $500 billion trade in counterfeit goods (“Editorial: The True Cost,” 2007). According to Ronald K. Noble, secretary-general of the international law enforcement agency Interpol, crime involving counterfeit merchandise “is becoming the preferred method of funding for a number of terrorist groups” (as cited in Langan, 2003).

Beyond the moral and ethical implications of its links to child labor, crime, and terrorism, counterfeit merchandise also undermines the mainstay of Western business—respect for intellectual property. In the context of a vast international market of counterfeit luxury goods, the issue of intellectual property can seem insignificant. But the creation of new products requires time, energy, and money, and “unrestrained copying robs creators of the means to profit from their works” (Sprigman, 2006). Copyright law exists to make sure that inventors and producers will be motivated to create original work and be fairly compensated for it. This principle applies to the designers of luxury goods and fashion items as well. Christopher Sprigman (2006) disagrees, however, noting that although intellectual property law does little to protect fashion designs, this is as it should be. “Trend-driven consumption,” says Sprigman, is good for the fashion industry because the industry’s ability to create trends “is based on designers’ relative freedom to copy.” But even this argument—which addresses the influences of legitimate fashion designers and manufacturers—cannot be used to justify allowing counterfeiters to copy Prada handbags or Hugo Boss suits and pass them off as genuine branded articles.

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Such illicit activity creates no trends—other than perhaps increasing the market for counterfeit products, which siphons off more profits from original designers.

The knock-off market is not limited to fashion and luxury goods. For example, fake products such as shoddy brake pads have directly injured many consumers. In addition, each year millions of people in the United States and abroad buy counterfeit drugs that do not work and in many cases are dangerous. Some sources estimate that the majority of drugs used to treat life-threatening diseases in Africa are counterfeit. Not coincidentally, many of the same people who are making and distributing counterfeit luxury goods are also manufacturing these drugs (“Editorial: The True Cost,” 2007).

It is time for people to realize the harm that is done by counterfeit merchandise and stop buying it. One way to combat this problem is to educate consumers about the effects of their purchases. As James Melik (2011) of the BBC explains, “People try to save money without realising that the purchase of counterfeit goods can actually harm themselves, the economy and ultimately, their own pockets.” Melik urges consumers to “think twice” before buying “products which promote and fund crime.” Another way to confront the problem is for law enforcement to address this issue aggressively. Not only should local authorities do more to stop this illegal trade, but national governments should also impose sanctions on countries that refuse to honor international treaties concerning intellectual property. Only by taking this issue seriously can we ensure that this “victimless” crime does not continue to spread and claim more victims.

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References

Coleman, S. (2012, January 20). China still accounts for majority of US counterfeit goods. Canadian Manufacturers and Exporters. Retrieved from http://www.cme-mec.ca/?lid=JCKNC-E742G-1W6JA&comaction=show&cid=DVU6K-CVBRZ-C6TZQ

Editorial: The true cost: Illegal knockoffs of name-brand products do widespread harm [Editorial]. (2007, December 2). The Columbus [OH] Dispatch, p. 4G.

Langan, M. (2003, July 24). Counterfeit goods make real terrorism. Pittsburgh Post-Gazette, p. A17.

MacLeod, C. (2011, August 2). China takes knock-offs to a new level, copying entire stores. USA Today. Retrieved from http://www.usatoday.com/money/industries/technology/2011-07-31-China-counterfeiting-fake-Western-goods-stores_n.htm

Melik, J. (2011, December 18). Fake goods save money but at what cost? BBC News. Retrieved from http://www.bbc.co.uk/news/business-16087793

Nairn, G. (2011, October 18). Countering the counterfeiters. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052970204226204576600462442044764.html

Sprigman, C. (2006, August 22). The fashion industry’s piracy paradox [Online forum comment]. Retrieved from http://www.publicknowledge.org/node/597

Thomas, D. (2007, August 30). Terror’s purse strings. The New York Times, p. A23.